Dairy Australia - Market News

Dairy Australia - Fortnightly Update 19 April 2013

Trade-Weighted Index (TWI) puts on a modest 0.6% at event 90 this week, DCANZ shows milk production for February down 2.6 per cent, Eurostat date shows strong growth in EU cheese exports during the first two months of 2013 and Danone confirms requests to restrict sales of Aptamil and ‘Cow & Gate’ infant formula products to two tins per purchase.

Global Developments

After several successive double digit increases, the Trade-Weighted Index (TWI) put on a more modest 0.6% at event 90 this week. Average WMP prices increased 2.4% to US$5,245/t, with a US$1,000/t difference persisting between current and new season product. SMP prices eased 3.2% to US$4,757/t as Fonterra’s NZ product lost ground – partly offset by gains in Arla and DairyAmerica offerings that reduced the Oceania premium however. NZ SMP is still more than US$1,000/t more expensive than European and US equivalents. Butter and AMF prices averaged US$4,721/t and US$4,964/t respectively (up 6.8% and 5.9%). See www.globaldairytrade.info/ for more information.

Production data released by the Dairy Companies Association of New Zealand (DCANZ) shows milk production for the month of February down 2.6% in leap year adjusted volume terms – the first drop in over two years. Season-to-date production is still up 5.3%, but continues to slow. Local reports suggest a further round of significant rainfall has been received in a number of drought-affected areas, however with many herds having been dried off for the season, a significant recovery to growth is considered unlikely in the current season.

Data released by Eurostat indicates strong growth in EU cheese exports during the first two months of 2013, with volumes up 12%. Russian buyers continue to drive the bulk of this growth, while spikes in demand out of the US and South Korea contributed to a 26% rise in exports of fresh/unripened cheeses. Whilst butter exports were also up, shipments of SMP and WMP have both lagged behind the same period in 2012.

Still in Europe, Danone has confirmed requests it made to supermarkets to restrict sales of its Aptamil and ‘Cow & Gate’ infant formula products to two tins per purchase, after evidence emerged that the products were being ‘unofficially exported’ to China. Tesco, Sainsbury’s, Asda, Morrisons and others are expected to follow suit.

The Australian Front

Murray Goulburn (MG) and Norco announced fresh drinking milk deals with Coles: the co-operatives have secured long-term contracts to supply over 250m litres per year of fresh milk to Coles. Both processors will be processing and packaging fresh drinking milk sold under Coles private label in addition to their own branded fresh milks. Effective 1 July 2014, MG has a 10-year contract to supply Coles in Victoria and most of New South Wales; while Norco has a 5-year contract to supply in southeast Queensland and northern NSW. The new Coles arrangements see the co-operatives replace current suppliers Lion (in Victoria, NSW and southeastern Queensland) and Parmalat (in Victoria).

To fulfil these new supply arrangements with Coles, MG will invest $120m building two new ‘state-of-the-art’ milk processing plants in western Sydney and Laverton (adjacent to MG’s existing logistics facility in Melbourne’s west) while Norco will invest $6m at its Labrador (Qld) plant.

Export Index

Australian Export Index (Base = 100 at Jan 2000)

MG has lifted its stake in Warrnambool Cheese & Butter (WCB) to 14.5%. MG also flagged its willingness to acquire additional shares at $4.60 per share. Management stated the purchase was ‘a strategic investment and there [was] no current intention to make a takeover offer for WCB, nor do [MG] currently intend to seek Board representation.” MG’s move follows Bega’s recent ‘rounding up’ of its holding in WCB to 17.1% along with its Executive Chairman’s resignation from the WCB board.

WCB confirmed in disclosures to the ASX that it (a) was ‘not aware’ of MG having any intentions other than those stated and (b) expected FY2013 net profit to decline 80% YoY.

The Australian Competition and Consumer Commission (ACCC) has formally approved collective bargaining between 7 dairy farmers from Manning Valley (mid-North Coast NSW) with Woolworths and Milk2Market for 3 years. The farmers will directly supply WOW with up to 15m litres of the group’s milk p. a, which Parmalat will bottle under a toll processing arrangement. WOW has stated that the trial of un-homogenised ‘Farmers’ Own’ will run for 3 years.